THE CAUSE OF 

HARD TIMES. 



URIEL H. CROCKER. 



LIBRARY OF CONGRESS, 



rap 






Shelf. 


Sh.i% 


UNITED STATES OF AMERICA, 



THE CAUSE 



OF 



HARD TIMES 



BY 



URIEL H; CROCKER 




There is that scattereth and yet increaseth; and there 
is that withholdeth more than is meet, but it teudeth to 
poverty. — Pkoverbs xi. 24 



/V^3?-# 



BOSTON 
LITTLE, BROWN, AND COMPANY 

1895 



H$ s o i 



Copyright, 1895, 
By Uriel H. Crocker. 



Cambu&ge, 3S.S>.a.: 

PRINTED BY JOHN WILSON AND SON, 
UNIVERSITY PRESS. 



PREFACE. 



TO the views set forth in this little book 
the author asks that a fair and unpreju- 
diced consideration may be given. As those 
views are new and have not yet penetrated 
into the professorial mind, they must stand 
or fall, not by the weight of authority or pre- 
cedent, but by the strength or weakness of 
the arguments adduced in their support. Of 
the critics, if they shall deign to notice him, 
the author asks that they will endeavor to 
make sure that they understand his views 
before they attack them, and will not set up 
as his, and then proceed to demolish, views 
and arguments for which he is in no way 

responsible. 

URIEL H. CROCKER. 

Boston, March, 1895. 



TABLE OP CONTENTS. 



Chapter Page 

I. Principal Characteristics of Hard Times 7 
II. The most Prominent Characteristic an Ex- 
cessive Capacity of Production, and a 
resulting Amount of Products in Excess 
of the Demand for them 13 

III. A General Excess of Production over De- 
mand has been alleged by Economists 
to be Impossible 15 

IT. The Arguments by which the Economists 
have supported their Position stated, 

and their Validity doubted 18 

V. The Position of the Economists shown to 
be a False One. There may be a Gen- 
eral Excess of Production resulting 
from an Excessive Amount of the Ma- 
chinery of Production 23 

VI. Statements by other Writers confirmatory 
of the Views set forth in the preceding 
Chapter .27 



IV TABLE OF CONTENTS. 

Chapter Page 
VII. An Excessive Amount of the Machinery of 
Production accounted for as a Result of 
an Excessive Demand for Income-pro- 
ducing Investments 34 

VIII. The Excessive Demand for Income-pro- 
ducing Investments arises from an Ex- 
cessive Desire to Save rather than to 

Spend 39 

IX. How the Lost Equality between Produc- 
tion and Demand may best be restored 48 
X. Why the recent Hard Times began when 
they did, and how soon we may expect 

them to end 52 

XI. Historical Facts confirming the Author's 

Theory 57 

XII. Some Practical Conclusions 63 

XIII. The Origin of "Trusts" 71 

XIV. The Difference between the Author's Views 

and those of the Economists a Radical 

One '4 

XV. The Economists' Explanation of the " Ten- 
dency of Profits to a Minimum " shown 
to be Antiquated and Inadequate . . 77 
XVI. Some Prognostications as to the Future . 79 



TABLE OF CONTENTS. 
Chapter 

XVII. A more Technical Argument, addressed 
particularly to Professional Econo- 
mists 

XVIII. A Harvard Professor's Question . . . 

XIX. Previous Writings by the Author and by 

Others on the Subject of this Book . 



V 

Page 

83 
95 

102 



Index 109 



THE 

CAUSE OF HARD TIMES. 



CHAPTER I. 

PRINCIPAL CHARACTERISTICS OF HARD TIMES. 

THE people of the United States, and to 
a perhaps less extent those of Europe 
also, have recently been suffering from a 
period of extreme depression in trade, or, in 
other words, from what are called "hard 
times. " About twenty years ago there was 
a similar period of depression, and during 
the whole interval since that time there has 
been much trouble of the same kind. The 
evidences of the present depression are well 
known. Laboring men have found it im- 
possible to obtain their usual employment. 
Manufacturing establishments have been un- 
able to find any profitable use for all their 



8 THE CAUSE OF HARD TIMES. 

machinery, and many of them have been 
compelled either to continue to turn out pro- 
ducts at a loss, to cut down wages, or to 
close up altogether. The railroads of the 
country have been without their usual amount 
of passengers and of freight, and have been 
driven to curtail their expenses by a large 
dismissal of employees, — the weaker rail- 
roads having been forced into the hands of 
receivers, while the stronger, by reason of 
the falling off of their profits, have been 
compelled to reduce or to omit altogether 
the dividends to their stockholders. Shop- 
keepers have complained that their trade 
has fallen off, and that consequently they 
have been unable to pay to their landlords 
the usual rents. And, finally, capitalists 
have found so small a demand for their funds 
that money has been a drug in the market, 
and only loanable at rates of interest unpre- 
cedentedly low. 

Under these circumstances it would seem 
to be a fact beyond dispute that the imme- 
diate cause of the depression is to be found 
in a falling off in the demand for the pro- 



THE CAUSE OF HARD TIMES. 9 

ducts of labor, — meaning by " demand," not 
that demand which seeks to obtain a product 
as a gift or for an inadequate price, but the 
demand which is ready and willing to pay to 
the producer a remunerative price for his 
product. It is surely the falling off in this 
demand that has deprived the shop-keeper 
of his trade, the manufacturer of a market 
for his products, the railroad of its freight 
and its passengers, the laborer of his employ- 
ment, and the capitalist of the usual return 
of interest upon his money. It is also clear 
that an increase in this demand would set 
all the wheels of industry in motion, would 
restore his trade to the shop-keeper, would 
make busy again the machinery of the manu- 
facturer, would load the railroads again with 
freight and with passengers, would give 
employment once more to all the great army 
of laboring men, and would cause capital to 
be again in demand and the current rate of 
interest to rise. These things are at last so 
plain that one can hardly find even a pro- 
fessor of political economy rash enough to 
denv them. 



10 THE CAUSE OF HARD TIMES. 

This strange condition of affairs, — this 
distress in the midst of plenty, — this super- 
abundance of laborers and of the machinery 
of production, ready for employment, but 
unable to find it, — this apparently complete 
equipment of the world with factories and 
railroads and warehouses and willing hands, 
all eager to join in the work of creating and 
distributing products for the comfort and 
pleasure of mankind, but all held in check 
and forced to remain idle by some strange 
power that paralyzes them, — these phenom- 
ena would seem to furnish a subject of pecu- 
liar interest and of especial importance for 
the student of political economy. But, 
strangely, the professors of that science sel- 
dom touch upon this subject in their books 
or in the journals devoted to their special 
branch of learning. Indeed, it would almost 
seem as if it were a subject avoided by them 
from a feeling of their entire inability to 
grapple with it. 

At the time of the great depression in trade 
that occurred about twenty years ago, the 
professors did indeed have some theories to 



THE CAUSE OF HARD TIMES. 11 

air and some advice to give. Then, one of 
the leaders among them, Professor Bonamy 
Price, the Professor of Political Economy 
in the University of Oxford, England, an- 
nounced in the Contemporary Review for 
April, 1877, (p. 787,) that the cause of the 
then existing trouble was "one and one 
only, — over-spending, over-consuming, de- 
stroying more wealth than is reproduced, and 
its necessary consequence, poverty." This 
theory was, however, plainly at variance 
with undisputed facts. A people suffering 
from "over-spending, over-consuming, de- 
stroying more wealth than is reproduced," 
cannot possibly find itself, as we found our- 
selves then, and again find ourselves to-day, 
possessed of multitudes of usable but unused 
products of labor, of an excess of idle ma- 
chinery, and of multitudes of men and women 
unable to find employment. Poverty, which 
Professor Price correctly called the "neces- 
sary consequence " of over-spending, is al- 
ways evidenced by a scarcity, rather than 
an abundance, of the products of labor, and 
by a large demand for labor to make good 



12 THE CAUSE OF HARD TIMES. 

the previous waste. Apparently, indeed, the 
professors of political " economy " have felt 
bound to consider " economy " to be the rem- 
edy for all evils, and the want of " economy " 
the cause of every kind of mischief, and in 
their attempt to carry out these ideas they 
have been reduced, like Professor Price, to 
the necessity of explaining a condition of 
abundance by making it the result of waste, 
— of explaining a condition where men can- 
not find any work to do in the creation of 
products, by making that condition the result 
of a wasteful destruction and consequent 
scarcity of products. 

If, then, we get no light from the profes- 
sors, let us examine the subject for our- 
selves, and see whether we can discover the 
true cause of the phenomena which constitute 
the so-called "hard times," or "depression 
in trade." 



CHAPTER H. 

THE MOST PROMINENT CHARACTERISTIC AN 
EXCESSIVE CAPACITY OF PRODUCTION, 
AND A RESULTING AMOUNT OF PRODUCTS 
IN EXCESS OF THE DEMAND FOR THEM. 

AS has been already stated, the one con- 
clusion which we may draw, of the 
truth of which it would seem that there can 
be no dispute, is this, — that at the present 
time the capacity of production of this coun- 
try, the capacity of its machinery and of its 
laboring classes to produce and distribute 
useful products, is far in excess of the remu- 
nerative demand for those products. There 
is surely nothing to keep idle machinery 
and willing hands from creating and dis- 
tributing products, if those products can be 
disposed of at a profit to the producers. The 
fact is that the producers are all ready and 
waiting, but the buyers are wanting. Plainly 



14 THE CAUSE OF HARD TIMES. 

the country's capacity of production has for 
the time run ahead of its demand for con- 
sumption, and this excess of capacity of pro- 
duction has only been made evident to the 
producers by an actual excess of production 
over the demand for consumption, ■ — by their 
discovery that they have stocks of goods on 
hand which are in excess of the amount 
which is called for at remunerative prices. 
This condition of affairs, this inequality 
between production and consumption, be- 
tween supply and demand, may properly be 
called either " over-production " or " under- 
consumption. " Each term equally well 
describes the situation, and each has been 
employed by different writers, but that which 
has been most usually employed by econo- 
mists has been "over-production." 



CHAPTER III. 

A GENERAL EXCESS OF PRODUCTION OVER 
DEMAND HAS BEEN ALLEGED BY ECONO- 
MISTS TO BE IMPOSSIBLE. 

AT this point, however, we encounter a 
difficulty. It is claimed by econo- 
mists that, while over-production of a par- 
ticular product is possible, and in fact often 
happens, a general over-production, or gen- 
eral excess of production over demand, is in 
the nature of things an utter impossibility. 
Thus John Stuart Mill, in his "Principles 
of Political Economy " (book 3, chapter 14, 
sections 1 and 3), says : " Because this phe- 
nomenon of over-supply and consequent in- 
convenience or loss to the producer or dealer 
may exist in the case of any one commodity 
whatever, many persons, including some dis- 
tinguished political economists, have thought 
that it may exist with regard to all com- 



16 THE CAUSE OF HAKD TIMES. 

modities, — that there may be a general over- 
production of wealth, a supply of commodi- 
ties in the aggregate surpassing the demand, 
and a consequent depressed condition of all 
classes of producers. . . . There may easily 
be a greater quantity of any particular .com- 
modity than is desired by those who have the 
ability to purchase, and it is abstractly con- 
ceivable that this might be the case with all 
commodities. The error is in not perceiv- 
ing that, though all who have an equivalent 
to give might be fully provided with every 
consumable article which they desire, the 
fact that they go on adding to the production 
proves that this is not actually the case." 

The great weight of the name of John 
Stuart Mill, and his reputation as a sound 
reasoner, have caused this conclusion of his 
to be accepted by economists as sacred truth. 
With the ordinary economist, to assert the 
possibility of general over-production is to 
commit the unpardonable sin. Thus, in an 
article by Moreton Frewen on " Gold Scarcity 
and the Depression in Trade," in the Nine- 
teenth Century for October, 1885, we read: 



THE CAUSE OF HARD TIMES. 17 

" People of little education are accounting for 
low prices on the hypothesis of general over- 
production; but it is hardly necessary to 
point out that, while over-production in any 
particular trade is frequent, and quickly 
adjusts itself, general over-production is 
impossible. " And Mr. Edward Atkinson, 
in an address on the " Statistics of Con- 
sumption," printed in the Boston Sunday 
Herald for July 5, 1885, says: "I desire to 
examine the outside of the head of any one 
who pleads a general over-production, in 
order to see how his brain is constituted, 
and what element of common sense has been 
omitted in his make-up." 



CHAPTER IV. 

THE ARGUMENTS BY WHICH THE ECONOMISTS 
HATE SUPPORTED THEIR POSITION STATED. 

AND THEIR VALIDITY DOUBTED. 

EVEX at the risk of incurring the con- 
tempt of Messrs. Frewen and Atkin- 
son, and of the whole tribe of professors of 
Political Economy. I will venture to exam- 
ine into the soundness of Mill's position. In 
the first place. I may mention that those who 
look only at the facts, not troubling them- 
selves about theory, are unanimously of the 
opinion that a state of general over-produc- 
tion has existed during the past few years. 
The practical man asks what class of pro- 
ducers (not in the enjoyment of a monopoly) 
there is which has not felt and believed that 
its own class of products has been over-pro- 
duced. If such a complaint came from a 
few only, the followers of Mill would admit 



THE CAUSE OF HARD TIMES. 19 

that it might be well founded, as he allowed 
over-production in special branches to be 
possible ; but general over-production he 
claimed to be impossible. If people gener- 
ally complain that they have been suffering 
from that, they must, according to his doc- 
trine, be under a delusion. As an illustra- 
tion how closely the modern economists hold 
to the views of Mill, the following words from 
Macvane's "Political Economy" (published 
in 1890) are here quoted : " Any one commod- 
ity, or any limited number of commodities, 
may be produced in excess of the demand at 
any time ; but it is quite impossible that all 
products should be in excess of the demand 
at one and the same time. If the supply 
of some things is excessive, the supply of other 
thinjs is deficient to the same extent." (Chap. 
27, sect. 1.) 

Is it possible that Mill and the theorists 
are right, and the practical men all deluded ? 
Is it possible that during all these hard times 
there have been, hidden somewhere, classes of 
products which, as is claimed by Professor 
Macvane, have been under-produced, — the 



20 THE CAUSE OF HAED TIMES. 

supply of which has not been equal to the 
demand, for them, — and the under-production 
of which has been sufficient to offset the over- 
production of other things, and to reduce the 
average of production to an equality with the 
average of demand ? If there have been any 
such under-produced products, — products for 
which the demand has exceeded the supply, 
— there must certainly have been a great 
profit derivable from the business of furnish- 
ing those products to customers eager and 
able to pay for them. Can it be that in this 
enterprising nation no one has been able to 
discover what these under-produced products 
were, and to employ in their production some 
of the vast amount of idle capital which has 
so long been seeking in vain for some prof- 
itable employment ? It would seem to be 
impossible for even Professor Macvane to 
answer these questions in the affirmative. 

If then observed facts appear to be so much 
at variance with theoretical conclusions, we 
can with more confidence examine into the 
arguments of the theorists. Mill's state- 
ment is that the " error " of those who have 



THE CAUSE OF HARD TIMES. 21 

supposed general over-production to be possi- 
ble consists " in not perceiving that, though 
all who have an equivalent to give might be 
fully provided with every consumable article 
which they desire, the fact that they go on 
adding to the production proves that this is 
not actually the case." In other words, 
Mill's argument is that no man creates a 
product except for the purpose of supplying 
himself with some other product which he 
desires, and that his production of his own 
product is always strictly proportioned to 
his desire to obtain other men's products in 
exchange for his own. Thus he limits the 
amount of the production of each individual 
to an amount which cannot exceed that of 
his own demand for the products of others, 
and consequently the production of the whole 
community, which is the aggregate of the 
production of all the individuals compos- 
ing that community, must according to Mill 
be limited to and cannot exceed the aggre- 
gate of the demand of all those individuals, 
and thus a general over-production, or gen- 
eral excess of production over demand, is 



22 THE CAUSE OF HARD TIMES. 

made impossible. But if it can be shown 
that men sometimes carry on production, not 
primarily and solely for the purpose of sup- 
plying themselves with the products of others, 
but for an entirely different and independent 
reason, Mill's argument necessarily falls to 
the ground. 



CHAPTER V. 

THE POSITION OF THE ECONOMISTS SHOWN TO 
BE A FALSE ONE. — THERE MAY BE A 
GENERAL EXCESS OF PRODUCTION RESULT- 
ING FROM AN EXCESSIVE AMOUNT OF THE 
MACHINERY OF PRODUCTION. 

THAT a powerful incentive to production, 
other than the desire of the producer 
to obtain the products of others, exists at the 
present day, cannot well be denied. This 
incentive is to be found in the willingness 
of the owners of the present immense amount 
of machinery of production to keep that 
machinery busy in the work of creating pro- 
ducts, even when they can only dispose of 
those products for less than cost, rather than 
to suffer the greater loss that must come to 
them if that machinery is allowed to lie idle. 
They often continue for long periods to carry 
on production, not because they hope there- 
by to gain a supply of products exceeding 
what they already have, but with a sure 



24 THE CAUSE OF HARD TIMES. 

knowledge that the daily result of their pro- 
duction is a decrease of their supply of pro- 
ducts, a diminution of their wealth, a net 
loss. And the way in which this is brought 
about is as follows. 

In recent years the machinery of production 
has been created so extensively that in very 
many branches of industry its capacity of 
production has been largely in excess of the 
demand for its products. And when this ex- 
cessive machinery is, as is usually the case, 
the property of different competing producers, 
the now familiar result is brought about that 
these competitors find at last that there is no 
remunerative demand for all their products. 
Some producer's machinery must stop its 
work, or all the producers will find that it is 
impossible to dispose of their products except 
at less than the ordinary profit, or perhaps 
not otherwise than at a loss. But stoppage 
itself involves a loss, and ordinarily a greater 
loss than continued production. The owner 
of idle machinery has upon his hands a 
costly article of property, which involves 
him in continual expense for its care and for 



THE CAUSE OF HARD TIMES. 25 

its protection from the weather, from fire, 
and from thieves, and which, in spite of all 
that he can do to preserve it, will rapidly 
deteriorate through rust and decay. He will 
also, by allowing his machinery to lie idle, 
suffer a further, and in most cases a more 
serious, loss from parting with and scatter- 
ing beyond recall the skilled workmen who 
have been running that machinery, and from 
driving the customers, who have been in the 
habit of buying his products, to seek else- 
where for their usual supply; and it is well 
known that a course of trade once diverted is 
not easily restored to its old channel. Under 
these circumstances, it is evident that a large 
and powerful body of producers — namely, 
the owners of the immense amount of the 
machinery of production — may well be 
brought, and in many recent cases have actu- 
ally been brought, to the creation of products 
to an amount not based upon and propor- 
tioned to the demand for those products, but 
based mainly on the producers' own desire 
to save and protect their machinery and their 
business. In order to save and protect these 



26 THE CAUSE OF HARB TIMES. 

important elements of wealth, they have been 
ready and willing to maintain and continue 
a production which has not only involved no 
profit, but which has often brought them 
actual loss. Thus we find it to be true that 
there may be a production which is, with the 
knowledge of the producer and intentionally, 
in excess of the producer's demand for the 
products of others; or, in other words, we 
find that the fact that men " go on adding to 
the production " does not prove that they are 
necessarily and solely actuated by a desire 
to increase their store of " consumable arti- 
cles," but that they may be actuated only 
by a desire to lessen an unavoidable decrease 
of their store of such articles, and Mill's 
argument to prove the impossibility of gen- 
eral over-production is shown to be founded 
in error, and it is made plain that there may 
exist, and have in fact existed, periods of 
so-called general over-production ; — or, in 
other words, periods when there has been a 
general excess of products over and beyond 
the demand for them at prices remunerative 
to the producers. 



CHAPTER VI. 

STATEMENTS BY OTHER WRITERS CONFIRMATORY 
OF THE VIEWS SET FORTH IN THE PRE- 
CEDING CHAPTER. 

THE actual working of the process by 
which, first, an excessive amount of 
machinery is created, and afterwards that 
machinery is run at a loss by its. owner in 
his desire to save himself from the greater 
loss that would result from its stoppage, has 
been well described by Mr. Andrew Carne- 
gie, a practical manufacturer, widely known 
and of recognized ability, in an article on 
" Trusts, " in the North American Review for 
February, 1889. Mr. Carnegie there says 
(pp. 141, 142) : — 

"A demand exists for a certain article, 
beyond the capacity of existing works to 
supply it. Prices are high, and profits 
tempting. Every manufacturer of that arti- 



28 THE CAUSE OF HAKD TIMES. 

cle immediately proceeds to enlarge his 
works and increase their producing power. 
In addition to this, the unusual profits attract 
the attention of his principal managers, or 
of those who are interested to a greater or 
less degree in the factory. These communi- 
cate the knowledge of the prosperity of the 
works to others. New partnerships are 
formed, and new works erected, and before 
long the demand for the article is fully satis- 
fied, and prices do not advance. In a short 
time the supply becomes greater than the 
demand ; there are a few tons or yards more 
in the market for sale than are required, and 
the prices begin to fall. They continue fall- 
ing until the article is sold at cost to the 
less favorably situated or less ably managed 
factory, and even until the best managed and 
best equipped factory is not able to produce 
the article at the price at which it can be 
sold. Political economy says that here the 
trouble will end. Goods will not be pro- 
duced at less than cost. This was true when 
Adam Smith wrote ; but it is not quite true 
to-day. When an article was produced by a 



THE CAUSE OF HARD TIMES. 29 

small manufacturer, employing, probably at 
his own house, two or three journeymen and 
an apprentice or two, it was an easy matter 
for him to limit or even to stop production. 
As manufacturing is carried on to-day, in 
enormous establishments, with five or ten 
millions of capital invested, and with thou- 
sands of workers, it costs the manufacturer 
much less to run at a loss per ton or yard 
than to check his production. Stoppage 
would be serious indeed. The condition of 
cheap manufacture is running full. Twenty 
sources of expense are fixed charges, many 
of which stoppage would only increase. 
Therefore, the article is produced for months, 
and in some cases that I have known for 
years, not only without profit or without 
interest upon capital, but to the impairment 
of the capital invested. Manufacturers have 
balanced their books year after year, only to 
find their capital reduced at each successive 
balance. While continuing to produce may 
be costly, the manufacturer knows too well 
that a stoppage would be ruin. " 

Mr. David A. Wells has made a similar 



30 THE CAUSE OF HARD TIMES. 

statement in his " Recent Economic Changes, " 
published in 1889, (p. 73,) as follows: — 

"It was formerly a general assumption 
that, when price no longer equalled the cost 
of production and a fair profit on capital, 
production would be restricted or suspended; 
that the less favored producers would be 
crowded out, and, by the relief thus afforded 
to the market, normal prices would be again 
restored. But this doctrine is no longer 
applicable to the modern methods of produc- 
tion. Those engaged in great industrial 
enterprises, whether they form joint-stock 
companies, or are simply wealthy individ- 
uals, are invested with such economic powers 
that none of them can be easily pushed to 
the wall, inasmuch as they can continue to 
work under conditions that would not permit 
a small producer to exist. Examples are 
familiar of joint stock companies that have 
made no profit and paid no dividends for 
years, and yet continue active operations. 
The stockholders are content if the plant is 
kept up, and the working capital preserved 
intact; and, even when this is not done, 



THE CAUSE OF HARD TIMES. 31 

they prefer to submit to assessments, or to 
issue preferred shares and take them up 
themselves, rather than go into liquidation, 
with the chance of losing their whole capital. 
Another feature of such a condition of things 
is that the war of competition, in which 
such industrial enterprises are usually en- 
gaged, is usually carried on by a greater and 
greater extension of the market supply of 
their products. . . . Under such circum- 
stances, industrial over-production, mani- 
festing itself in excessive competition to 
effect sales and in a reduction of prices 
below the cost of production, may becbme 
chronic." * 

1 The following quotations from the author's pamphlet 
entitled "Over-production and Commercial Distress" (pp. 
16-18), published in 1887, are here given, in order to show 
that Messrs. Carnegie and Wells had been anticipated by 
this author in their statement of the causes of recent over- 
production. Indeed, the similarity in the form of the three 
statements would seem to show that this author furnished 
to the two later writers the unacknowledged basis for their 
above quoted statements. 

"Modern society has brought in, to complicate the prob- 
lem which Mill attempted to solve, at least one new and im- 
portant element, namely, the immense amount of machinery, 
which now increases a hundred fold the effectiveness of human 



32 THE CAUSE OF HARD TIMES. 

labor. And the use of machinery has had one curious effect 
which Mill entirely overlooked ; namely, that its owner finds 
an inducement to employ it in the production of consumable 
articles, even when he has no hope or expectation that he 
can by such production supply himself, directly or indirectly, 
with any consumable article for his own use. The factory 
owner, for instance, has upon his hands a piece of propertj' 
which, if idle, will involve him in continued expense for its 
care and its protection from the weather, from fire, and from 
thieves, and which, in spite of all that he can do to prevent 
it, will rapidly deteriorate through rust and decay. The 
owner of an idle factory must also suffer a further injury 
from losing the skilled workmen who have been accustomed 
to run his machinery, and from forcing the customers, who 
have been in the habit of buying his products, to patronize 
rival manufacturers ; for to fill the places of those workmen 
and to find new customers, when his factory starts up again, 
must certainly involve him in great trouble and expense. . . . 
In order to avoid the loss which must necessarily come to 
him if his machinery is allowed to remain idle, he will em- 
ploy that machinery in production, even when he knows that 
the articles produced must be sold for less than the cost of 
producing them." 

"It is evident that during recent years much machinery 
has in fact been run without profit, or at a loss, to its owners, 
— run simply because those owners believed that they would 
suffer a smaller loss if they should continue to run it than if 
they should allow it to lie idle. It has in recent years been 
a matter of common observation that most kinds of machin- 
ery have been created of a capacity in excess of the demands 
of the market for the products which the machinery has been 
adapted to produce. There has hardly been<a branch of man- 
ufacture, open to free competition, in which the machinery 
has not within the last ten years been run for long periods 



THE CAUSE OF HARD TIMES. 33 

at a loss, simply because its owners have hoped to kill off 
rival manufacturers, to hold the market in anticipation of 
better times, or to avoid the deterioration and expense neces- 
sarily attendant upon idleness ; and there is hardly any 
branch of manufacture to-day — unless it is, through a patent 
right or otherwise, in the enjoyment of a monopoly — which 
is not endeavoring to limit production by all sorts of mutual 
agreements, known as pools, trusts, etc., and thereby to pre- 
vent the continuance or recurrence of the troubles which it 
has experienced and of the losses which have resulted from 
the excessive amount of its machinery and from its gen- 
eral capacity of production in excess of the demands of the 
market." 



CHAPTER VII. 

AN EXCESSIVE AMOUNT OF THE MACHINERY OF 
PRODUCTION ACCOUNTED FOR AS A RESULT 
OF AN EXCESSIVE DEMAND FOR INCOME- 
PRODUCING INVESTMENTS. 

WE have seen that the chief feature of our 
recent business depressions has been a 
general excess of production over the demand 
for products at remunerative prices, a condi- 
tion which, under the name of " general over- 
production," the professional economists have 
mistakenly thought they had proved to be 
impossible, and we have seen further how an 
excessive creation of the machinery of pro- 
duction has, through the competition of the 
owners of that machinery, made this general 
over-production not only a possible, but an 
actually existing phenomenon. We have 
next to consider how we may account for the 
existence of this excessive amount of ma- 
chinery. 



THE CAUSE OF HAKD TIMES. 35 

There is at the present time a great 
demand in the civilized world for income- 
producing investments, meaning thereby 
those kinds of property which secure to 
their owners annual returns of income. The 
wealthy classes depend for their support up- 
on the income which they derive from such 
investments, and the same is true in the 
main of our charitable and educational insti- 
tutions, and, in a less degree, of the poorer 
classes, who often supplement the income 
derived from their daily wages with interest 
upon a deposit in a savings bank, or with 
dividends upon a few shares in the stock of 
a corporation. 

We are apt to think that the field for these 
income-producing investments is unlimited 
in extent, but, if we consider carefully, we 
shall see that this is by no means true. We 
shall find that such investments are substan- 
tially limited to two classes: first, those 
based on real estate; and secondly, those 
based on what may be called the world's 
machinery of production and distribution, 
including in this latter class factories, ware- 



36 THE CAUSE OF HARD TIMES. 

houses, railroads, canals, steamships, sail- 
ing vessels, and the other like aids which 
mankind has learned to use in the great work 
of creating and distributing the various pro- 
ducts of labor. Most, if not all, income- 
producing investments will be found to be 
included directly or indirectly in one of 
these two classes. Mortgages, bonds, and 
promissory notes derive their value from the 
real estate or other property owned by the 
mortgagor or promisor, and the book of a 
depositor in a savings bank only represents 
a share in the investments which the bank 
has made with the funds of its depositors. 

The strict limitation of the amount of the 
first of these two classes of income-producing 
investments is evident. The income-pro- 
ducing real estate of the world at any given 
time is not only plainly limited in amount, 
but is also substantially secured in exclusive 
ownership. The limitation of the other 
class, — that of the machinery of production 
and distribution, — is not at first sight so 
clear. If, however, it be true, as we have 
stated above, that such machinery may be, 



THE CAUSE OF HARD TIMES. 37 

and in fact in recent years has been, created 
with a capacity of production in excess of 
the remunerative demand for its products, 
we see at once that there is a limit to this 
kind of investment also, — that there is a limit 
to the amount of such machinery which can 
find any profitable employment, — the over- 
stepping of which limit leads to a total loss 
of income by the holders of the investments, 
and may even cause a change in the char- 
acter of the investments from income-pro- 
ducing to income-destroying. It appears 
then that the field for the investment of 
capital, so that it shall make annual returns 
of income to its owners, is distinctly limited 
in every direction, and that its limits have 
been in recent times distinctly approached, 
and even in some cases overstepped, and 
thus we see that the true cause of this over- 
production of machinery and of products is 
to be found in an excessive desire to se- 
cure these income-producing investments, — 
a desire that has led to a creation of the 
machinery of production and distribution, not 
only up to the limit which the circumstances 



38 THE CAUSE OF HARD TIMES. 

of the time have fixed for the amount of that 
machinery which may at that time be income- 
producing, but even beyond that limit into 
the region where machinery becomes, not in- 
come-producing, but income-destroying. 



CHAPTER VIII. 

THE EXCESSIVE DEMAND FOR INCOME-PRODU- 
CING INVESTMENTS ARISES FROM AN EX- 
CESSIVE DESIRE TO SAVE RATHER THAN 
TO SPEND. 

WE have shown that there may be in the 
world an excessive desire to secure 
income-producing investments, — a desire 
so great as to defeat its own ends, and to 
convert from increasers to destroyers of in- 
come even the investments which have been 
already secured. But what is this desire for 
income-producing investments other than a 
necessary result of the much lauded virtue 
of saving ? — not, indeed, the old-fashioned 
miser's saving of his coins in an old stock- 
ing, but that more intelligent saving, which 
abstains from spending one's gains or wages 
to secure immediate and transient comforts 
and pleasures, and, instead, devotes those 



40 THE CAUSE OF HAED TIMES. 

gains or wages, or at least a portion of them, 
to what economists have called " productive 
consumption," — to the creation of new 
machines of production or distribution, in 
order that the saver may, by the profits 
which he hopes to derive from that machin- 
ery, secure a provision against the needs of 
old age or of ill health, or may guard his 
own future or that of his children against 
the necessity of daily labor. 

Here we reach a conclusion very difficult 
of general acceptance. Saving has been 
quite universally accepted as a virtue to be 
practised at all times and under all circum- 
stances. Solomon did indeed say, "There is 
that scattereth, and yet increaseth ; and there 
is that withholdeth more than is meet, but it 
tendeth to poverty " (Proverbs xi. 24) ; but 
this has been supposed to be a matter in 
which the wisdom of Solomon has been found 
to be wanting. It is hard to bring people 
to-day to believe with Solomon that the gen- 
eral practice of saving may be carried to such 
an extent as to be excessive, and to do injury 
rather than good to mankind. It is hard to 



THE CAUSE OF HARD TIMES. 41 

overturn deep-seated prejudices; but preju- 
dices must at last, though slowly, yield to 
reason. We have seen that saving for the 
purpose of securing income-producing invest- 
ments (which the economists recognize as the 
best object of saving) may be carried to such 
an extent as to overfill the possible limits of 
the field of profitable investments, and thus 
to bring, instead of benefit to mankind, only 
the enforced idleness, the miseries, and the 
want of a period of business depression. 

As the troubles of the recent hard times 
have been due mainly to a want of demand 
for products, — to a failure of demand to 
keep pace with production, — we can see, 
further, that if the great army of savers, 
instead of devoting so much of their surplus 
funds to the creation of superfluous machin- 
ery of production, had employed more of 
that surplus in the purchase of products to 
be consumed for their own immediate com- 
fort or pleasure, not only would the super- 
fluous new machinery with its resulting 
troubles never have been called into being, 
but these very people would have themselves 



42 THE CAUSE OF HAKD TIMES. 

created an added demand for products, — a 
demand that would have kept in full action 
all the old and also some new machinery, 
would have kept demand up to an equality 
with supply, would have prevented all the 
disastrous results of the competition between 
the owners of the superabundant machinery, 
and, in a word, would have prevented en- 
tirely the occurrence of any hard times. 

It is perhaps well here to caution the reader 
against the idea that the author of these 
pages fails to recognize any virtue in saving. 
No one can admit more readily than he does 
that human progress has been mainly brought 
about by the aid of this virtue. Except for 
the saving of the past, the world would be 
without all the immense machinery of pro- 
duction and distribution which exists to-day, 
and which forms perhaps the most important 
element of our civilization. All that is here 
claimed is that economy and saving, like 
most other good things, can be carried too 
far, — so far, indeed, as to cause injury rather 
than benefit to mankind. One need not be 
supposed to deny the benefit or the necessity 



THE CAUSE OF HARD TIMES. 43 

of food for the human body, because he 
claims that the gratification of an inordinate 
desire for food may result in injury to health, 
or even in the destruction of life itself. It 
is certainly evident that if all men should, 
in their desire to save and to acquire wealth, 
practise the strictest economy, live on the 
simplest food and in the meanest houses, 
wear the poorest clothes, and abstain from 
all travelling and pleasure-seeking, they 
would render all machinery of production 
and distribution substantially useless and 
unprofitable, and would find that, by their 
extreme efforts to save and grow rich, they 
had defeated their own purposes, and had 
rendered valueless the hard earned and much 
treasured investments of their past savings. 
In a world of misers the investment of sav- 
ings would necessarily be limited to the old- 
fashioned hoarding of gold, for there would 
be no profit in the ownership of idle facto- 
ries, railroads, steamships, and warehouses, 
and even real estate, if there were no trade 
in the shops and no demand for desirable 
house lots, would give little or no gain to its 



44 THE CAUSE OF HARD TIMES. 

owners. So long, however, as mankind are 
not all misers, there will always be an oppor- 
tunity for the individual to gain by saving, 
although, if the general saving of the. whole 
community be excessive, the individual's 
gain may be the public's loss. In advancing 
his own interests, the individual may add to 
the general loss arising from the excessive 
creation of the machinery of production and 
distribution ; as, on the other hand, in these 
days of business depression, a man might 
help the general situation by spending not 
only his income but his principal in giving 
employment to idle workmen. He would 
ruin his own fortune and injure himself, but 
he might be a public benefactor by setting 
some of the wheels of business in motion. 

That the practice of economy and the 
acquisition of income-producing investments 
has in recent days been carried too far, is 
not to be wondered at. To save rather than 
to spend, and thereby to grow rich, has been 
popularly considered to be almost, if not 
quite, the chief end of man. The pulpit and 
the press have united in teaching the duty of 



THE CAUSE OF HARD TIMES. 45 

economy. No man has been thoroughly re- 
spected by his neighbors unless he has been 
adding, according to his means, to his store 
of income-producing investments. The me- 
chanic and the laborer have been doing this 
by deposits in the savings banks, the depos- 
its in those institutions in the small State 
of Massachusetts alone having shown an 
increase even during the hard times of the 
year ending Oct. 31, 1894, of over sixteen 
millions of dollars. 1 The citizen that has 
accumulated investments to the amount of 
ten thousand dollars has been endeavoring, 
by a life of self-denial, to increase those 
investments to a hundred thousand. He 
that has had a hundred thousand has been 
looking forward to and laboring to bring- 
about the time when he might enroll himself 
among the millionaires. He that has had a 
million has been hard at work to triple or 
quadruple his million before his death. And 
even a Yanderbilt, an Astor, a Gould, a 
Russell Sage, or a Hetty Green, has not been 

1 See Report of Massachusetts Board of Commissioners of 
Savings Banks for 1894. 



46 THE CAUSE OF HARD TIMES. 

content unless he or she could each year add 
more millions to his or her already immense 
accumulations. 

In this way men have gone on increasing 
their investments in the machinery of pro- 
duction and distribution, unmindful of the 
fact that such machinery is valuable only so 
far as it creates and distributes products for 
which the market furnishes a remunerative 
demand, and that, if that demand fails to 
keep pace with the amount of products, the 
machinery of production must be, to just the 
extent by which demand lags behind, super- 
fluous, useless, and without profit. Men 
have acted as if they supposed it to be pos- 
sible to cut down to the lowest limits the 
consumption of products, and at the same 
time to afford the largest field for the profit- 
able employment of machinery and of labor 
in creating and distributing those products. 
Under these circumstances it is not strange 
that machinery has been created with a 
capacity of production far in excess of the 
demands of the market for its products, and 
that products have actually been created in 



THE CAUSE OF HARD TIMES. 47 

excess of these demands. The supply of 
products has been continually increasing, 
but there has been no corresponding increase 
in the demand for them. At last the owners 
of the machinery have been forced to close 
their factories and to dismiss their workmen, 
and by that very act they have made the 
already inadequate amount of demand still 
more inadequate, for their own ability and 
inclination to spend is greatly lessened by 
the loss of the profits which they had ex- 
pected to derive from their machinery, while 
the demand of the dismissed and unemployed 
workmen is necessarily reduced to a bare 
call for the simplest necessaries of life. 



CHAPTER IX. 

HOW THE LOST EQUALITY BETWEEN PRODUC- 
TION AND DEMAND MAY BEST BE RE- 
STORED. 

AS we have found it to be true that the 
aggregate of production may be in 
excess of the aggregate of demand at remu- 
nerative prices, and as we have found that, by 
reason of that excess, hard times have been 
brought about, and the laboring classes have 
been forced to be idle and starving in the 
midst of plenty, it plainly becomes the duty 
of the economist to study how this inequality 
between production and demand may best be 
removed, and how the lost equality between 
these two elements may best be restored. 
It is evident that, in order to restore this 
lost equality, one of two things must be 
done : a way must be found either to reduce 
production or to increase demand. There 



THE CAUSE OF HARD TIMES. 49 

are various means by which these two results 
may be reached, and it is surely the duty of 
the economist to study carefully these vari- 
ous means, and to point out those which are 
most likely to be on the whole beneficial in 
their operation. 

Oh the one hand, production may be dimin- 
ished by wars, riots, floods, and conflagra- 
tions ; by the refusal of mankind to avail 
itself of the assistance of labor-saving ma- 
chinery; by the enforced idleness of large 
classes of people, as by preventing convicts 
in prisons from performing useful labor; by 
reducing the hours of labor through the 
adoption of eight-hour laws or otherwise; 
or by the closing of factories and the stop- 
page of machinery, this last being a result 
which has frequently been brought about in 
recent years through combinations of manu- 
facturers in so-called " trusts, " whereby the 
machinery of one or more of the producers 
of a commodity has been kept idle at the 
joint expense of all the producers of that 
commodity. 

On the other hand, demand may be in- 



50 THE CAUSE OF HAED TIMES. 

creased by the action of government in 
waging costly and destructive wars, in main- 
taining large armies and navies in time of 
peace, and in the erection of costly public 
buildings and public works. It may also be 
increased by a more liberal expenditure on 
luxuries by the richer classes, or by a more 
generous use of wealth in charities for the 
poor. A larger enjoyment of the comforts of 
life by the poorer classes would of course 
increase demand ; but this mode of increase 
is not dependent on the simple volition of 
the poor themselves, for, before they can 
increase their demand, it is necessary that 
they should receive increased wages, or at 
least wages which, if not larger as measured 
in currency, are larger in purchasing power. 
And, finally, demand may be increased 
through the opening of new fields for the 
investment of capital, as would happen, for 
example, if a new mode of transportation 
were invented which would serve as a substi- 
tute for railroads. 

Most of these methods of diminishing the 
aggregate of production, or of increasing the 



THE CAUSE OF HARD TIMES. 51 

aggregate of demand, are evidently remedies 
that are worse than the disease for which a 
cure is sought. There are, however, at least 
two of these suggested remedies that may 
well be worthy of our careful attention. If 
we can relieve the troubles of the time by 
increasing the demand of. the poor for com- 
forts and luxuries, or by reducing the hours 
of labor of the laboring classes, or if we can 
effect a combination of these two remedies, 
whereby the poor shall both enjoy more and 
labor less, shall have more to enjoy and more 
time for enjoyment, a good result will surely 
be accomplished. At all events, we may 
conclude that this new conception of the true 
province of political economy opens for us 
new and unexplored fields of thought, worthy 
of careful and earnest consideration. 



CHAPTER X. 

WHY THE RECENT HARD TIMES BEGAN WHEN 
THEY DID, AND HOW SOON WE MAY EX- 
PECT THEM TO END. 

WE have seen that the recent 'hard times 
have been caused by the fact that 
production has run ahead of demand, and we 
have traced the causes which have tended to 
bring about this excess of production. It 
remains for us to discover some reason why 
this inequality between production and de- 
mand should have been felt in the United 
States so suddenly and so severely in the 
summer of 1893. There must have been at 
that time something to cause either a great 
and sudden increase of production or an 
equally great and sudden decrease of demand. 
There was evidently no reason for a sudden 
development at that time of the desire for 
income-producing investments, and a result- 



THE CAUSE OF HARD TIMES. 53 

ing sudden increase of the machinery of pro- 
duction. There was no such cause, and no 
such result. There was, however, a sudden 
decrease of the general demand for products, 
and the cause of this diminution of demand 
is not far to seek. In the summer of 1893 
there was in the United States, as is well 
known, a sudden and violent panic in the 
business community, arising out of a fear 
that gold was going to a premium, which 
panic caused a general locking up of funds 
and an extreme scarcity of money, and made 
the current rates of interest unusually high. 
There were many failures, and all classes 
were frightened and began to economize. 
Shopkeepers, finding that their trade was 
falling off, feared to lay in their usual stocks 
of goods. Manufacturers found that the de- 
mand for their products was disappearing, 
and consequently began to reduce the number 
of their employees. The idle employees 
were no longer able to make their usual pur- 
chases, and the stockholders in the factories, 
who were expecting to be deprived of their 
usual dividends, reduced largely their pur- 



54 THE CAUSE OF HARD TIMES. 

chases also. Thus everything conspired to 
reduce demand, thus the sudden inequality 
between production and demand was brought 
about, and thus the hard times were begun. 

If this was the way in which the recent 
hard times began, in what way may we hope 
that they will be brought to an end ? The 
hard times of twenty years ago were probably 
brought to an end in the United States by a 
great demand from Europe for our grain. 
The sale of their grain at good prices brought 
prosperity back to our Western farmers. 
They began again to purchase freely ; demand 
began to grow throughout the country ; the 
machinery of production began to be busy 
again; shopkeepers, finding that prices were 
beginning to rise, thought it was time for 
them to fill their shelves with ample stocks 
of goods for future sales ; all men began to 
be hopeful of the future and to spend freely 
again; and thus the tide was turned and 
demand increased rapidly. It would seem 
that we have not at present much reason to 
hope that we may feel such a stimulus to the 
general demand for products as was furnished 



THE CAUSE OF HAED TIMES. 55 

twenty years ago by the European demand for 
our grain. But there have recently been some 
signs of improvement in business, and it may 
well be that a sufficient stimulus to start us 
on the road to recovery may be found in an 
increased demand, which must necessarily 
spring up at last after a season devoted to 
the using up of old supplies and to the 
emptying of shops and warehouses. If there 
can be but the beginning of such an increase 
of demand, we may well hope that it will 
continue until our machinery and our labor- 
ing men and women are all busy again, 
until both production and demand are again 
full and ample, and until the hard times 
shall have fully disappeared. The one thing 
needed is only an increase of the demand 
for products. This may of course be most 
naturally brought about by an increased abil- 
ity to purchase ; but it may also be brought 
about by an increased inclination and readi- 
ness to purchase, arising out of a general 
disposition to take a more hopeful view of 
the future, out of a feeling that the time for 
saving and scrimping has passed, and that a 



56 THE CAUSE OF HAED TIMES. 

more liberal scale of expenditure may finally 
be indulged in. If only this feeling of hope- 
fulness regarding the future can come to us, 
it matters not on what the feeling is founded, 
or indeed whether it is well founded at all. 
If only it will come, it will work out the ful- 
filment of its own prophecies, — it will start 
the increase of demand, — it will raise de- 
mand to an equality with supply, and thus 
will bring us to the end of the present hard 
times. 



CHAPTER XL 

HISTORICAL FACTS CONFIRMING THE AUTHOR'S 
THEORY. 

THE recent history of Europe furnishes 
one well-established fact, which is 
wholly inexplicable except on the theory 
advanced in this book. After the Franco- 
German war of 1871 France was left with its 
territory devastated by the armies which had 
fought within its borders. Its farms, its 
buildings public and private, its factories, 
its highways, and its railroads had been 
ruined and destroyed, and it had been com- 
pelled to pay an enormous sum as an indem- 
nity to its victor. Germany had however 
suffered little in comparison. The battles 
had not been fought on its soil, and its 
expenses in the war had been in large part 
repaid to it by the milions of indemnity 
which it had extorted from its fallen foe. 



58 THE CAUSE OF HAKD TIMES. 

But history shows that under these circum- 
stances — which, according to all accepted 
principles of political economy ought to have 
caused prosperity in Germany and want and 
distress in France — it was Germany that 
suffered from hard times, the general depres- 
sion in trade after 1873 having been felt 
more severely in Germany than in either 
England or America, while France was 
entirely free from any such trouble. 1 

1 Lest the reader should doubt the truth of the historical 
statement here made, the following quotation is given 
from the article, already referred to, by Professor Bonamy 
Price in the Contemporary Review for April, 1877 (pp. 779— 
783) : — 

"Commercial depression is the universal cry, a commer- 
cial depression probably unprecedented in duration in the 
annals of trade, except under the disturbing action of pro- 
longed war. . . , Ample evidence abounds on all sides to 
show its extent and severity in England. . . . Have other 
countries bowed their heads in suffering under the commer- 
cial depression ? Let America be the first to speak. In 
1873 she experienced a shock of the most formidable kind. 
She has not recovered from the shock at this very hour. . . . 
Let us visit Germany, — Germany, the conqueror in a great 
war, and the exactor of an unheard of indemnity. What- do 
we find in that country ? Worse commercial weather at this 
hour than in any other. Nowhere are louder complaints ut- 
tered of the stagnation of trade. . . . And so we come round 



THE CAUSE OF HARD TIMES. 59 

The theory here presented easily accounts 
for these facts by showing that there could 
have been in France no hard times, with 
factories and laboring men in want of em- 
ployment, at a time when all the machinery 
and all the men and all the railroads of the 
country were hard at work repairing the 
waste of the war. In Germany, on the other 
hand, a period of great prosperity immedi- 

to France, the people whose well-being has been so visited 
with the most violent assaults. Her losses and sufferings 
have surpassed those endured by any other nation, yet the 
deep, heavy pressure of the commercial paralysis has weighed 
upon her the least oppressively of all. War has desolated 
her broad fields and overthrown her industries over great 
areas of her territory. Her taxation has been suddenly raised 
by the gigantic sum of thirty millions of English pounds a 
year. . . . Her share of the commercial trial has been the 
severest and largest of all ; yet at this hour she exhibits, not 
the melancholy languor of business men in other countries, 
but the active movements of quickened recovery." 

It seems almost incredible that the above should have 
been written by the economist who traced the cause of the 
commercial depression of which he wrote simply to "over- 
spending, over-consuming, destroying more wealth than is re- 
produced, and its necessary consequence, poverty." He could 
argue that this was the cause of the trouble, and yet admit 
that the result was the smallest where the cause was the 
greatest, and the result the greatest where the cause was the 
smallest. 



60 THE CAUSE OF HARD TIMES. 

ately following the war, — a time when new 
buildings and new factories were erected in 
large numbers to make ready for a booming 
future that did not materialize, — was suc- 
ceeded by a time when it was found that the 
nation had been going too fast, when the 
rich found that their investments were not 
going to be as productive of income as they 
had hoped and expected, and that they must 
therefore stop building and must retrench 
their expenses. Thus the laboring men 
began to lose their daily employment and 
daily wages, and were forced to economize 
also, and thus hard times with their accom- 
panying distress were brought about, and 
Germany, the conqueror, that had come 
lightly out of the war, was suffering from an 
enforced idleness of its people, while the 
people of France were enjoying the benefits 
of an enforced activity which compelled 
everybody to be busy. In a similar manner 
we may account for the condition of the 
United States after the conclusion of the 
War of the Rebellion. During that war 
there was nowhere complaint of enforced 



THE CAUSE OF HARD TIMES. 61 

idleness, nor was there such complaint for 
several years after the war was over. Dur- 
ing those years there was much to be done 
in the way of repairing the damage and 
waste that the war had caused, and there 
was also all over the country an immense 
investment of capital in the building of new 
shops and warehouses, new dwellings to be 
sold or let, new railroads, and new factories. 
At last, however, it was found that this 
investment of capital had been overdone, 
that there were more new shops and ware- 
houses than there was demand for, that there 
were more new dwelling-houses than could 
be sold or let, and that there were more 
railroads and factories than profitable em- 
ployment could be found for. Then the 
laboring classes, whose services had been in 
great demand all through the war and through 
the succeeding years, began to find that their 
employers had no further need of their ser- 
vices. Then those who had made the un- 
profitable investments began to see that they 
must economize and consume less of the 
products of labor. Demand on all sides 



62 THE CAUSE OF HARD TIMES. 

rapidly fell off. A general excess of products 
beyond the demand which was ready to pay 
a remunerative price for them began to be 
evident, and the hard times of 1873-74 were 
upon us. 



CHAPTER XII. 

SOME PRACTICAL CONCLUSIONS. 

THE fact which we have endeavored to 
establish, of the existence of limits 
to the field for income-producing invest- 
ments, suggests several conclusions which 
are important. 

The first is that the immense investments 
of people like the Vanderbilts, the Astors, 
and the Goulds are mischievous so far as 
they tend to monopolize the whole of the 
world's field of investment, and to leave 
small chance for the generality of people to 
make, by the investment of their smaller 
savings, the needed provision against the 
wants of old age or of sickness. It will be 
unfortunate if the time shall ever come when 
a few families will have secured in their own 
exclusive possession the ownership of all, or 
of substantially all, the real estate and the 



64 THE CAUSE OF HARD TIMES. 

machinery of production and distribution, 
and will have left, as the only possible in- 
vestment of savings open to the multitude, 
the hoarding of gold and silver and jewels in 
safe-deposit vaults or in old stockings. Such 
a result would operate to destroy in the 
greater portion of mankind that virtue of 
providence, of thought for the future, which 
has done so much to advance civilization. 

Secondly. The theories, of which much is 
heard at present, which would exclude all 
individual ownership from real estate and 
from railroads, telegraphs, gas-works, water- 
works, and the like, would greatly restrict 
the limits of the field for the profitable in- 
vestment of capital, and would thus render 
it much more difficult than it is to-day for 
individuals to find income-producing invest- 
ments for their possible savings, and men 
would thus have small inducement to refrain 
from living from hand to mouth, and from 
taking no thought for the morrow, and would 
be led to neglect that provision for the 
future which is so important an element for 
human welfare. 



THE CAUSE OF HARD TIMES. 65 

Thirdly. The overcrowding of the field 
for income-producing investments is causing 
a reduction in the rate of income to be 
derived from invested property, and though, 
in the course of its development, this brings 
us to times of general distress, the process 
is in its final result a beneficent one, for, as 
I have written in a previous publication, 1 
"A reduction in the rate of income from 
invested property means, in the final analy- 
sis, that the world pays less than it has 
before been paying for the use of its machin- 
ery; that labor is obtaining a larger, and 
capital a smaller share of the compensation 
paid for production; that of the price of 
every article purchased for consumption by 
the rich or by the poor a greater proportion 
goes to pay for the labor, whether of hand or 
of brain, that has been expended on its pro- 
duction or its transportation, and less for the 
use of the machinery which has helped to 
produce it or to transport it to the consumer. 
The evils, then, which result from an exces- 
sive investment of capital in machinery, are 

1 "Over-production and Commercial Distress," p. 29. 
5 



66 THE CAUSE OF HAED TIMES. 

only temporary. The evils of general over- 
production, of glutted markets, and of en- 
forced idleness and consequent want among 
the poor, are only the results of the irregu- 
lar flowing of a stream whose general course 
tends surely towards the improvement of 
mankind, and the lessening of the inequal- 
ities between the rich and the poor. It has 
been my purpose to show how the irregulari- 
ties in the flow of this stream, the temporary 
chokings of its current, have been caused, 
and how depression in trade has resulted 
from these irregularities in the working of a 
process, which, if it were regular and not 
too rapid, would operate only to the good of 
mankind." 1 

Fourthly. If, as has been argued, the clos- 
ing of factories and the throwing of laborers 
out of employment find their original cause 
in an excessive desire, on the part of the 
general public, to acquire income-producing 
investments, and in a consequent overcrowd- 

1 The first few lines of this quotation were quoted by Hon. 
David A. Wells in his "Recent Economic Changes," p. 430, 
but without giving any credit to their author. 



THE CAUSE OF HARD TIMES. 67 

ing of the limited field for such investments, 
it would seem that the sufferers from the 
results thus brought about might fairly have 
some claim on that public, as represented by 
the government of the city, state, or nation, 
for relief from the suffering thus created. 
If the action of the community as a whole, 
through the general excess of its desire to 
accumulate investments, is such as to leave 
labor unemployed and starving in the midst 
of abundance, may not the idle and starving 
laborers fairly claim that the government, 
which represents the community at large, 
shall find and supply them with that employ- 
ment, that means of earning a livelihood, 
which individuals have failed to furnish ? A 
new light is thus thrown on the question of 
the policy of establishing public workshops, 
and of carrying on public improvements for 
the purpose of giving employment to the 
idle. The objections to such measures, on 
grounds not here noticed, may be insuper- 
able ; but the views before set forth suggest 
strong arguments why, under certain circum- 
stances, it may be the duty of a government 



68 THE CAUSE OF HAED TIMES. 

to relieve public distress by employing work- 
men on a large scale in carrying out public 
improvements which would not otherwise be 
undertaken. 

Fifthly. An argument in favor of a pro- 
tective tariff may be drawn from the theory 
here presented. If a country, on account of 
its undeveloped condition, or for any other 
reason, affords greater opportunities and a 
larger field than other countries for the 
profitable investment of capital, it is pos- 
sible that it may, by limiting, through tariffs 
or otherwise, its communication with other 
countries where the field of investment is 
more crowded, postpone the time when the 
effects of the competition between investors 
will cause depression in trade, hard times, 
and general distress within its own borders. 
It is probably true, however, that, though a 
country may by a protective tariff, which 
shuts out foreigners from competing with 
native production, postpone somewhat the 
time when it is itself to suffer from some of 
the unpleasant, though necessary, incidents 
of its progress towards a diminution of the 



THE CAUSE OF HARD TIMES. 69 

profits of the rich and idle, and an increase 
of the profits of the laboring poor, it yet 
thereby only delays the march of its own 
progress in civilization. America, with its 
less crowded field for investment, may by a 
tariff keep its own markets for its own pro- 
ducers, and may thereby prevent the capital 
of Europe from intruding upon and taking- 
possession of a portion of that field. It may 
thus prevent foreign capital from competing 
with its own capital on equal terms, and 
may thereby keep its rate of income from 
investments up to a higher figure than the 
European rate. In ocean commerce English 
and American capital have competed in 
recent years on exactly equal terms; and the 
former, being the cheaper capital, — that is, 
the capital that is content with the lower 
rate of interest, — has necessarily driven out 
of the field the dearer capital of America, 
and the destruction of the foreign commerce 
of the United States is thus seen to be no 
result of protection or of free trade, or of 
any legislation or want of legislation, but to 
be simply the necessary effect of the law 



70 THE CAUSE OF HARD TIMES. 

which gives to the cheaper capital the entire 
control of any field of investment to which 
it has full and unrestricted access. And if, 
by the removal of duties or otherwise, Eng- 
lish capital shall be enabled to compete in 
our markets in the production of any given 
article of manufacture, with only the slight 
item of the cost of transportation from Eng- 
land to America operating against it, we 
may expect it to be as efficient as in the case 
of ship-owning in driving American capital 
out of that field of investment, or at least in 
forcing American capital to be content with 
a lower rate of profit than it had previously 
been accustomed to. On the other hand, if 
we look upon the maintenance of a high rate 
of profit for capital as simply the mainte- 
nance of high prices for the use of the 
machinery of production and distribution, 
and of low prices for labor, we see that pro- 
tective tariffs, though they may sometimes 
postpone the coming of periods of general 
over-production and distress, are on the whole 
a hindrance to the onward march of civili- 
zation and to the general improvement of the 
condition of mankind. 



CHAPTER XIII. 



ONE of the results plainly traceable to 
the overcrowding of the field of invest- 
ment has been the formation of the numerous 
so-called "trusts," which have of late played 
an important part in the manufacturing 
interests of the country. Whenever it has 
been found that the machinery of production 
in any branch of manufacture has been 
created with a capacity of production in 
excess of the demands of the market, the 
different manufacturers, in their endeavors 
to avoid being left with unsold balances of 
products on their hands, have, as has been 
before stated, been forced to dispose of those 
products for less than it had cost to produce 
them. Production having grown largely in 
excess of demand, it has been necessary that 
it should in some way be reduced, and, as no 



72 THE CAUSE OF HAED TIMES. 

single manufacturer has been willing to 
allow his machinery to lie idle for the bene- 
fit of his competitors, there has been no way 
left except for all those engaged in the busi- 
ness to band themselves together in a so- 
called "trust," and to place the management 
of the business of all in the hands of one 
man or of a few men, who are given full 
power to determine the amount of production 
that can profitably be carried on, and who 
can order the stoppage of any machinery that 
they may deem to be for the time superflu- 
ous, — the owner of the idle machinery re- 
ceiving, however, his full proportion of the 
profits of the whole business. Thus in vari- 
ous special branches of manufacture over-pro- 
duction has been prevented, and production 
has been limited to the amount at which the 
product can be disposed of at a price remu- 
nerative to the producer. This " trust " 
scheme has proved in practice to be very 
efficient, and it has been successful in secur- 
ing to those who have joined in forming 
these combinations, whether their machinery 
has been busy or idle, a handsome income on 



THE CAUSE OF HARD TIMES. 73 

their investments. Where, however, pro- 
ducers have been unable or unwilling to 
unite in this way, and have endeavored to 
escape from the loss which they would 
suffer from disposing of their products at 
less than cost by reducing that cost through 
a cutting down of the wages of their em- 
ployees, they have found that they have not 
thereby helped the situation, inasmuch as, 
the whole cause of the trouble being an 
amount of products in excess of the demand 
for them, a mere reduction of cost without 
any reduction of the amount produced has 
had but little effect towards equalizing pro- 
duction and demand, and thus those pro- 
ducers who have tried to remedy the evil by 
a simple reduction of wages have found 
substantially the same difficulty in disposing 
of their superfluous products, after they have 
thus reduced the cost thereof, that they had 
found before that reduction had taken place. 



CHAPTER XIV. 

THE DIFFERENCE BETWEEN THE AUTHOR'S 
VIEWS AND THOSE OF THE ECONOMISTS 
A RADICAL ONE. 

THE views set forth in this book are, as 
has been before stated, in direct con- 
flict with the doctrine of the impossibility 
of general over-production. That doctrine, 
however, lies, according to John Stuart Mill, 
at the basis of the whole of the accepted 
system of political economy, of which he 
may be considered to have been the founder. 
Mill says of it : " The point is fundamental. 
Any difference of opinion on it involves 
radically different conceptions of political 
economy, especially in its practical aspect. 
On the one view, we have only to consider 
how a sufficient production may be combined 
with the best possible distribution; but, on 
the other, there is a third thing to be con- 



THE CAUSE OF HARD TIMES. 75 

sidered, — how a market can be created for 
produce, or how production can be limited 
to the capabilities of the market. " a Mill's 
idea seems to have been, that, as it was 
impossible that there should be a general 
excess of production over demand, it was 
only necessary for the economist to consider 
how to promote the production and distribu- 
tion of products ; but he seems strangely to 
have overlooked the consideration that, even 
if it was impossible that production should 
run ahead of demand, it was still possible 
that, the two being as it were tied together, 
production might be limited and held back 
by a lagging demand, and that therefore cir- 
cumstances might still exist under which 
the only way to promote production would be 
by finding a means of increasing demand, 
and that therefore his own conception of 
political economy, — namely, that its only 
province is "to consider how a sufficient pro- 
duction may be combined with the best pos- 
sible distribution, " — was by his own con- 

1 Principles of Political Economy, Book III. Chap. XIV. 
sect. 4. 



76 THE CAUSE OE HAED TIMES. 

fession " radically different " from the true 
conception, and that, in addition to produc- 
tion and distribution, there was really a 
third thing to be considered, namely, "how 
a market can be created for produce. " We 
see, therefore, that Mill's system of political 
economy, built upon the consideration of 
production and distribution alone, is a false 
system, even if, as Mill claimed, general 
over-production is impossible; but if, as 
has been shown, general over-production is 
not only possible, but a matter of actual and 
present experience, then his whole concep- 
tion of political economy is doubly proved 
to be false, and we find double reasons for 
adopting what he calls a " radically different 
conception " of that science. 



CHAPTER XV. 

THE ECONOMISTS' EXPLANATION OF THE TEN- 
DENCY OF PROFITS TO A MINIMUM SHOWN 
TO BE ANTIQUATED AND INADEQUATE. 

MILL had much to say of the " tendency 
of profits to a minimum." He recog- 
nized the existence of this tendency, and 
explained it as follows : "On a limited ex- 
tent of land only a limited quantity of capi- 
tal can find employment at a profit. As the 
quantity of capital approaches this limit, 
profit falls. When the limit is attained, 
profit is annihilated, and can only be re- 
stored through an extension of the field of 
employment, either by the acquisition of 
fertile land, or by opening new markets in 
foreign countries from which food and mate- 
rials can be purchased with the products of 
domestic capital. " 1 

1 Principles of Political Economy, Book IV. Chap. IV. 
sect. 1. 



78 THE CAUSE OF HARD TIMES. 

This theory, -which makes the rate of the 
profit derivable from capital to depend upon 
the area of fertile land, might have some 
plausibility if income-producing investments 
were limited to agricultural lands; but in 
these modern days, when by far the greater 
part of the income which capital receives is 
derived from the ownership of lands which 
produce no crops, and of the machinery of 
production and distribution, Mill's theory 
is seen to be utterly inadequate and anti- 
quated. The theory advanced in these pages, 
however, fully explains the admitted ten- 
dency of profits to a minimum, by referring 
it to the tendency of mankind to accumulate 
income-producing investments of all kinds at 
a rate faster than the rate of growth of the 
possible field for such investments, thereby 
gradually crowding that field, so that the 
competition of the investors gradually forces 
down the rate of profit which can be obtained 
from their investments. 



CHAPTER XVI. 

SOME PROGNOSTICATIONS AS TO THE FUTURE. 

ALTHOUGH in the future a general in- 
crease in the wages of labor, or other 
causes, may bring about an increased con- 
sumption of and demand for products, and 
consequently an increased use for the ma- 
chinery of production and distribution, yet 
it seems probable that the desire to obtain 
income-producing investments will be so 
general and so powerful that the field for 
such investments will hereafter remain per- 
manently crowded, except when it may be 
cleared for a time by the destruction due to 
a great war, or by an invention which shall 
call for a large investment in a new kind of 
machinery. A crowding of the field for 
investment must lead to severe competition 
among investors, and to a lessening of their 
profits. Manufacturing business, therefore, 



80 THE CAUSE OF HARD TIMES. 

when it has no monopoly, but is open to the 
competition of all comers, may be expected 
to return in the future only small profits. 
Railroads, if free from competing lines, may 
however expect their business to increase in 
volume, and, if free from too much legislative 
interference, which seems now to be their 
chief danger, may be expected to pay hand- 
some dividends. For real estate, advanta- 
geously situated, a large increase in rental 
value may be anticipated, which will make 
real estate a desirable form of investment, 
unless too great a portion of the rents deriv- 
able from it is taken by taxation to be wasted 
or squandered by incompetent or corrupt 
governments. Money in the future cannot 
be expected to command more than low rates 
of interest ; indeed, it is probable that there 
will be a general and continued decline in 
the current rate. We may anticipate, how- 
ever, that the development of the results 
which we have foreshadowed will not be 
regular and uniform. There will continue 
to be in the future, as there have been in the 
past, periods when demand will be abnor- 



THE CAUSE OF HARD TIMES. 81 

mally increased by a general movement to 
accumulate stocks of goods in anticipation of 
an expected rise in their price, and periods 
also when demand will be abnormally dimin- 
ished by the causes which have been shown 
to have brought about hard times ; but it 
would seem that the general tendency must 
be such as has been indicated. 

A more serious question arises as to the 
probable behavior of the laboring classes in 
the hard times which are sure to come at 
intervals in the future, and when they find 
themselves again and again unemployed and 
starving in the midst of plenty. The labor- 
ing classes are every year showing them- 
selves to be more and more ready to resort to 
violence in attempts to right their supposed 
wrongs, and it is but natural to expect that 
they will grow more and more impatient at 
each repetition of the experience of suffer- 
ing mysteriously from want in the midst of 
plenty, and that they may at any time strike 
blindly and with violence at anything that 
demagogues lead them to suppose to be the 
cause of their troubles. Socialism, with its 
6 



82 THE CAUSE OF HARD TIMES. 

promises of relief from such troubles, may 
well gain much support in the future, and 
may even succeed in putting its theories into 
practice. At any rate, the possible results 
that may arise from the influence of future 
hard times upon the general advance of 
civilization are so important, that a careful 
study of the causes of these periods of busi- 
ness depression is well worthy of the con- 
sideration of all thoughtful men. 



CHAPTER XVII. 

A MORE TECHNICAL ARGUMENT, ADDRESSED PAR- 
TICULARLY TO PROFESSIONAL ECONOMISTS. 

IT was claimed by John Stuart Mill, and 
it is now claimed by economists gen- 
erally, that " general over-production " is, in 
the nature of things, an impossibility. Un- 
fortunately, Mill gave no clear definition of 
the meaning of the term " general over-pro- 
duction"; and we are left to extract his idea 
of that meaning from his general discussion 
of the subject. Let us examine, first, what 
Mill has said regarding the nature of simple 
over-production, — i. e. the over-production of 
a single commodity, — and afterwards we 
can pass to the consideration of the more 
complex idea of general over-production. 

Fortunately, we find in Mill what amounts 
to a definition of "over-supply," a term by 
which he expressed the result of " over-pro- 



84 THE CAUSE OF HARD TIMES. 

duction." He states that "dearth or scar- 
city, on the one hand, and over-supply, or, in 
mercantile language, glut, on the other, are 
incident to all commodities. In the first 
case the commodity affords to the producers 
or sellers, while the deficiency lasts, an 
unusually high rate of profit ; in the second, 
the supply being in excess of that for which a 
demand exists at such a value as will afford 
the ordinary profit, the sellers must be con- 
tent with less, and must in extreme cases 
submit to a loss. " 1 From this statement we 
may fairly assume that Mill's idea of over- 
production was this : a production which 
affords a supply in excess of that for which 
a demand exists at such a value as will 
afford the ordinary profit, while by the corre- 
sponding term, under-production, he meant a 

1 Principles of Political Economy, Book III. Chap. XIV. 
sect. 1. I understand that in this place Mill by "ordinary 
profit" meant, not the average rate of profit of the immedi- 
ate time under consideration, but an average rate of profit 
determined by the experience of a series of years. In this 
sense it may properly be said that the average rate of profit 
during a year of hard times is less than the " ordinary " rate, 
the average rate for that year being less than that of preced- 
ing or succeeding years. 



THE CAUSE OF HARD TIMES. 85 

production which affords a supply so defi- 
cient in amount that the demand affords to 
the producer an unusually high rate of profit. 
These definitions leave us, however, in some 
doubt as to the standard by which the profit 
which is thus made the test of over-produc- 
tion is to be measured. A slight examina- 
tion, however, will suffice to show that the 
profit which is to be regarded in determin- 
ing whether a product has or has not been 
over-produced is not a profit above the 
actual cost of the product, but a profit above 
what it would cost at the time of the sale to 
reproduce the product; for it often happens 
that, by reason of improved mechanical pro- 
cesses, the producer of a commodity which 
has not been produced to an excessive 
amount is forced, by the competition of the 
producers of the later and cheaper article, 
to dispose of his own product without profit, 
or at a loss as compared with the actual cost 
of its production. In such case, however, 
the producer properly attributes his failure 
to secure a profit to the change in the meth- 
ods of production, and not to any excessive 



86 THE CAUSE OF HARD TIMES. 

amount of production. If, however, a com- 
modity will not sell at the ordinary profit 
over what it costs at the time of sale to 
reproduce it, there is certainly the best of 
evidence that there has been an excessive 
production, resulting in an excessive supply 
of the commodity, — a production which is 
mistaken and in error solely as to the amount 
produced, and which is, therefore, properly 
called an over-production. 

We thus reach the following definition of 
over-production; namely, a production result- 
ing in a supply in excess of that for ivhich a 
demand exists at such a value as will afford 
the ordinary profit over what the reproduction 
of the commodity would cost. This definition 
of over-production corresponds, as we believe, 
with the idea of it held by Mill, and also 
with the ordinary idea of the practical' man 
of business, who, to state this matter shortly, 
considers that a commodity has been over- 
produced when it would not pay to increase 
the supply of it. 1 

1 Except for the fact that the above definition follows the 
form of expression adopted by Mill, we should prefer the fol- 



THE CAUSE OF HAKD TIMES. 87 

The kind of demand above referred to, 
namely, the demand for a commodity at 
such a value as will afford the ordinary 
profit over the necessary cost of its produc- 
tion, will, in order to avoid unnecessary ver- 
biage, be referred to in this chapter simply 
as remunerative demand. 

If such be the meaning of over-production, 
as applied to a single commodity, what is 
meant by " general over-production " ? Let 
us look first for such light on this point as 
we can obtain from Mill. His statement is, 
that, "because this phenomenon of over-sup- 
ply, and consequent inconvenience or loss to 
the producer or dealer, may exist in the case 
of any one commodity whatever, many per- 
sons, including some distinguished political 
economists, have thought that it may exist 
with regard to all commodities, — that there 
may be a general over-production of wealth, a 

lowing as a definition of over-production : — A production of 
a commodity creating a supply in excess of that for which a 
demand exists, which is prepared to give in exchange for the 
commodity an amount of labor of the time of the exchange 
equal to the amount of labor which would be required for the 
reproduction of the commodity. 



88 THE CAUSE OF HARD TIMES. 



of commodities in the aggregate sur- 
passing the demand." And he says further, 
that these mistaken economists "agree in 
maintaining that there may be, and some- 
times is, an excess of productions in general 
beyond the demand for them, and that, when 
this happens, purchasers cannot be found at 
prices which will repay the cost of production 
with a profit. " 1 To prevent any possible 
misunderstanding, it may here be remarked 
that it is evident that Mill did not by gen- 
eral over-production mean an over-produc- 
tion of every individual product, nor indeed 
an over-production of a majority of products, 
but an aggregate of production of all pro- 
ducts in excess of the aggregate of adequate 
demand for all products ; in other words, an 
over-production of one or more products 
without any corresponding and equivalent 
under-production of some other product or 
products. That this was Mill's idea is 
shown further by his statement that, when 
economists mistakenly suppose that general 

1 Principles of Political Economy, Book III. Chap. XIV. 
sect. 1. 



THE CAUSE OF HARD TIMES. 89 

over-production exists, the real trouble is 
that the producer "has produced a thing not 
wanted instead of what was wanted. . . . 
There is no over-production. Production is 
not excessive, but merely ill-assorted." 1 

The question of the possibility of general 
over-production is thus reduced to this form. 
Is it possible that there should exist at any 
time an over-production of one or more pro- 
ducts, unless there is at the same time a 
corresponding under-production of some other 
product or products ? In other words, is it 
possible that one product should be selling 
for less than the ordinary profit over the cost 
of its reproduction, unless some other pro- 
duct is at the same time selling at more than 
the ordinary profit over the cost of its repro- 
duction ? Such is the question which we 
have now to consider. 

1 Principles of Political Economy, Book III. Chap. XIV. 
sect. 3. By "over-production" in this passage Mill evi- 
dently means "general over-production." That Mill's idea 
is not misrepresented may be shown by the passage already 
quoted from Macvane's recent work : "It is quite impossi- 
ble that all products should be in excess of demand at one 
and the same time. If the supply of some things is excessive, 
the supply of other things is deficient to the same extent." 



90 THE CAUSE OF HAED TIMES. 

In examining this question we shall for 
the present pass by the somewhat compli- 
cated arguments by which Mill and others 
have endeavored to show that general over- 
production is not possible, and shall offer an 
argument by which we think it can be shown 
affirmatively that general over-production is 
possible. For the purposes of this argument 
we lay down the following proposition : — 

If at any time there is a production of a 
commodity not based upon and strictly pro* 
portioned to the remunerative demand for it, 
but, ivith the knoivledge of the producer, in ex- 
cess of that demand, then there may at such 
time be an over-production of that commodity 
and no corresponding under-production of any 
other commodity. In other ivords, there may 
be in such case a general over-production. 

In proof of this proposition, it would seem 
to be sufficient to say, that if, in addition to 
such production as is based on and propor- 
tioned to remunerative demand, there is 
another and further production which goes 
on regardless of that demand, then it is evi- 
dent that there can be no reason why the 



THE CAUSE OF HARD TIMES. 91 

aggregate of production may not exceed the 
aggregate of demand ; or, in other words, 
no reason why an under-production should 
necessarily accompany every over-produc- 
tion. 

We are thus brought to consider whether 
a production which is not proportioned to 
but regardless of remunerative demand may 
actually exist, and we reach our second prop- 
osition, which is as follows : — 

A production of a commodity not based upon 
and strictly proportioned to the remunerative 
demand for the product, but, with the knowl- 
edge of the producer, in excess of that demand, 
may arise, and has in some cases actually arisen, 
when machinery for the production of the com- 
modify has been created with a capacity of 
production in excess of the remunerative de- 
mand for the product. 

That many kinds of machinery with an 
excessive capacity of production have actu- 
ally been created in recent years, is a fact 
so widely known that it can hardly be dis- 
puted. And when this excessive machinery 
is, as is usually the case, the property of 



92 THE CAUSE OF HARD TIMES. 

different competing producers, the now 
familiar result is brought about that these 
competitors find at last that there is no re- 
munerative demand for all their products. 
Some producer's machinery must stop its 
work, or all the producers will be forced to 
dispose of their product at less than the 
ordinary profit, or even at a loss. But stop- 
page itself involves a loss, and ordinarily 
a greater loss than continued production. 
The owner of idle machinery has upon his 
hands a costly article of property, which 
involves him in continual expense for its 
care and for its protection from the weather, 
from fire, and from thieves, and which, in 
spite of all that he can do to prevent it, will 
rapidly deteriorate through rust and decay. 
He will also, in allowing his machinery to 
stop, suffer a further, and in most cases a 
more serious, loss from parting with and 
scattering beyond recall the skilled workmen 
who have been running that machinery, and 
from driving the customers who have been 
in the habit of buying his products to seek 
elsewhere for their usual supply ; and it is 



THE CAUSE OF HARD TIMES. 93 

well known that a course of trade, once 
diverted, is not easily restored to its old 
channel. Under these circumstances it is 
evident that a large and powerful body of 
producers — namely, the owners of the ma- 
chinery of production — may well be brought, 
and in fact in many recent cases have ac- 
tually been brought, to the creation of pro- 
ducts to an amount not based upon and 
strictly proportioned to the remunerative 
demand for those products, but based mainly 
on their own desire to save and protect their 
machinery and their business. In order to 
save and protect these important elements of 
wealth, men are ready and willing to main- 
tain a production which not only involves no 
profit, but which often brings to them actual 
loss. Thus we find it to be true that there 
may be a production which is, with the 
knowledge of the producer and intentionally, 
in excess of remunerative demand; and the 
conclusion is readied that there may be an 
over-production without any corresponding 
under-production ; or, in other words, that 
there may be a general over-production. 



94 THE CAUSE OF HAKD TIMES. 

The same conclusion may be reached by a 
shorter, and perhaps to some a more satis- 
factory argument, as follows. If men were 
ready to engage in production, not solely in 
order to meet the remunerative demand for 
products, but also that they might gratify a 
desire for muscular exercise, it surely could 
not be denied that production in the aggre- 
gate might in such case be brought to exceed 
the aggregate of remunerative demand. And 
the result cannot be different if that which 
men desire to keep active in the work of pro- 
duction is not their natural muscles, but the 
machinery which serves as an artificial aid 
to those muscles. 



CHAPTER XYIIL 

A HARVARD PROFESSOR'S QUESTION. 

AT the midwinter examinations at Har- 
vard College in 1895, the following 
question was put to the students in " Econo- 
mics I." "Suppose everybody resolved to 
consume productively only, what would be the 
result f " As I felt very curious to know 
what the Harvard economists would consider- 
to be the true answer to this question, I 
wrote to Prof. W. J. Ashley, who according 
to the Harvard Catalogue stood at the head 
of "Economics I.," that I should feel greatly 
obliged to him if he would inform me what 
he considered to be the true answer to this 
question. Prof. Ashley wrote me in reply 
that he did not himself set the question, 
but that he imagined the examination paper 
which contained it was prepared by his asso- 
ciate, Prof. Cummings. Prof. Ashley added, 



96 THE CAUSE OF HARD TIMES. 

that he supposed "that the question was set 
to ascertain whether the student had really 
read his Mill carefully, especially the last 
paragraph of Book I. Chap. III.,'* and that 
he imagined that his "colleagues would hold 
that the answer might properly depend on 
conditions of time and place." As the only 
" conditions of time and place " that could 
be involved in the question appeared to me 
to be simply those of the present time, and of 
our planet, the earth, and as upon referring 
to my Mill I could get no light from the 
paragraph to which Prof. Ashley referred 
me, I wrote to Prof. Edward Cummings ask- 
ing him what he considered to be the true 
answer to the question which he had pro- 
posed. As I received no reply to my note, 
I wrote Prof. Cummings a second time, sug- 
gesting that my first note might have called 
for so elaborate an answer that he had felt 
disinclined to answer it, and that therefore I 
would modify my question and ask simply 
"Would the result be an increase of the 
wealth of the world ? " a question that would 
require for answer only a simple " Yes " or 



THE CAUSE OF HARD TIMES. 97 

"No." As Prof. Cummin gs has not vouch- 
safed to me the ordinary courtesy due from 
one gentleman to another who has asked him 
a civil question, — if he was afraid to commit 
himself by an answer, he might at least have 
replied that his business was to put, not to 
answer, questions in political economy, — I 
have been forced to abandon all attempts to 
learn how a Harvard Professor answers one 
of his own questions. 

As, however, the Professor's question 
seems to be one which deserves a careful 
answer, I will myself give it some considera- 
tion. " Suppose everybody resolved to con- 
sume productively only, what would be the 
result ? " The first result would evidently 
be an immediate and total stoppage of the 
consumption of and demand for all sorts of 
luxuries, and for all those comforts of liv- 
ing which do not contribute to mankind's 
efficiency in production. Men would eat 
simple but nutritious food, would wear cheap 
and common clothing, would live in plain 
and simply furnished houses, would travel 
but little, would have but the smallest use 

7 



98 THE CAUSE OF HARD TIMES. 

for theatres or hotels, and would seldom 
employ any domestic servants, male or 
female. The hundreds of thousands who 
are now employed in supplying all the un- 
productive consumption of the world would 
lose their employment, and be forced to look 
about to see how they could find occupation 
in supplying that demand for productive 
consumption which, by the conditions of the 
question, would be all the demand that would 
be left in existence. Now to what would the 
Professors have these people turn their atten- 
tion ? To what products would they have 
them devote their labors ? Should they all 
become cheap tailors and hat-makers and 
boot-makers, and manufacture millions of 
coats, hats, and boots to be piled up in ware- 
houses waiting for a demand that could never 
catch up with the supply ? Or should they 
build factories and railroads and steamships, 
for which, in the diminished demand for 
those things in a world which abstained 
entirely from unproductive consumption, 
there would be no use, and which would be 
built only to rot and rust and decay, unused 



THE CAUSE OF HARD TIMES. 99 

and unusable ? Surely no one would claim 
that men should employ- their time in the 
production of any superfluous products such 
as we have mentioned. It follows, then, 
that if " everybody resolved to consume pro- 
ductively only,'' one result would be that it 
would not be possible to find full employ- 
ment for everybody, and that every one 
would be idle a. good part of the time, or 
that many would be idle all the time. Or, 
to put it more simply, if "everybody re- 
solved to consume productively only," not 
half the productive capacity of mankind 
would be called into action. 

And, secondly, what would be the result 
as regards the wealth of the world ? Would 
that wealth be increased or diminished ? An 
immediate result would certainly be that all 
the wealth that was invested in articles of 
unproductive consumption or in machinery 
for the production or distribution of such 
articles would become useless, and conse- 
quently valueless. In this way the wealth 
of the world would certainly be diminished. 
Is there any way in which there could be an 



100 THE CAUSE OF HARD TIMES. 

increase of wealth to compensate for this 
certain decrease ? There could be no wealth 
in the ownership of things that nobody 
wanted. In a world where every one's 
wants were the simplest, there would be but 
the smallest profit in the ownership of the 
warehouses, shops, factories, railroads, and 
ships that would be needed to keep those 
wants supplied. Wealth could not increase, 
men could not grow rich, for it would be 
impossible for men to find new income-pro- 
ducing investments, and the income to be 
derived from old investments would be re- 
duced to the lowest limits. We arrive, then, 
at the conclusion that the result of mankind's 
resolve to consume productively only must 
be general idleness and a large decrease of 
the world's wealth. I have not been able to 
find in Mill or in the writings of the profes- 
sors of political economy any suggestion of 
any of these results, and when I ask the pro- 
fessors what opinions they hold on these sub- 
jects, they either fail to take any notice of 
my questions, or, like Jack Bunsby, — who, 
when delivering his opinions, was wont to 



THE CAUSE OF HARD TIMES. 101 

add, " The bearings of this observation lays 
in the application on it," — they reply that 
the answer to the question "might properly 
depend on conditions of time and place." 
It may amuse one to speculate how high a 
mark the student would have received who 
should have been brilliant enough to write 
down this answer to the question in his 
examination paper. 



CHAPTER XIX. 

PREVIOUS WRITINGS BY THE AUTHOR AND BY 
OTHERS ON THE SUBJECT OF THIS BOOK. 

THE views presented in this book were 
first suggested by this author in a 
communication printed in the Boston Daily 
Advertiser in its issue for August 8, 1877. 
That communication was followed at inter- 
vals by numerous others in the Boston Ad- 
vertiser, the Boston Transcript, the New 
York Nation, and in other papers. The 
author also set forth his views somewhat 
at length in an article entitled " Saving 
versus Spending," which appeared in the 
Atlantic Monthly for December, 1878. All 
his earlier writings on this subject were 
collected by him in 1884 in a pamphlet 
entitled " Excessive Saving a Cause of Com- 
mercial Distress." That pamphlet was fol- 
lowed in 1886 by another, entitled "The 



THE CAUSE OF HARD TIMES. 103 

Depression in Trade and the Wages of 
Labor," and in 1887 by still another, entitled 
" Over-production and Commercial Distress." 
The author has also contributed two articles 
to the Quarterly Journal of Economics, the 
first entitled " General Over-production, " 
which appeared in the number for April, 
1887, and the other entitled "The Over-pro- 
duction Fallacy," which appeared in the 
number for April, 1892, and an article by 
him, entitled "Diminishing Returns from 
Investment," appeared in the Social Econo- 
mist for April, 1893. 

For the views of other writers on the sub- 
jects discussed in this book the following 
references are here given: — 

Wealth of Nations, by Adam Smith, Book 

I. Chap. IX., Of the Profits of Stock; Book 

II. Chap. III., Of the Accumulation of Cap- 
ital, or of Productive and Unproductive 
Labor. — Principles of Political Economy, by 
Rev. T. R. Malthus, Chap. VII., sect. 3, Of 
Accumulation, or the Saving from Revenue 
to add to Capita], considered as a Stimulus 
to the Increase of Wealth ; sect. 10, Applica- 



104 THE CAUSE OF HARD TIMES. 

tion of some of the Preceding Principles to 
the Distress of the Laboring Classes since 
1815, .with General Observations. — Political 
Economy, by Dr. Thomas Chalmers, Chap. 
III., On the Increase and Limit of Capital; 
Chap. V., On the Possibility of a General 
Glut. — Treatise on Political Economy, by 
Jean-Baptiste Say, Book I. Chap. XL, 
Of the Formation and Multiplication of 
Capital; Chap. XV., Of the Demand or 
Market for Products. — Letters to Mr. 
Malthus on various Subjects of Political 
Economy, particularly on the Causes of 
the General Stagnation of Commerce, by 
Jean-Baptiste Say. — Principles of Political 
Economy and Taxation, by David Ricardo, 
Chap. XXL, Effect of Accumulation on 
Profits and Interest; Chap. VI., On Profits. 

— Elements of Political Economy, by James 
Mill, Chap. IV., sect. 1, Of Productive and 
Unproductive Consumption; sect. 3, That 
Consumption is co-extensive with Production. 

— Principles of Political Economy, by John 
Stuart Mill, Vol. I. Book I. Chap. V., Fun- 
damental Propositions on Capital, sect. 3; 



THE CAUSE OF HARD TIMES. 105 

Chap. XL, Law of Increase of Capital, sect. 
4; Vol. II. Book III. Chap. XIV., Excess of 
Supply; Book IV. Chap. IV., Of the Ten- 
dency of Profits to a Minimum; Chap. V., 
Consequences of the Tendency of Profits to a 
Minimum. — Chapters on Political Economy, 
by Prof. Bonamy Price, Chap. IV., Capital. 
— Article entitled "One Per Cent," by Prof. 
Bonamy Price, in the Contemporary Review 
for April, 1877. — The Economy of Consump- 
tion, by Robert Scott Moffat. — Principles 
of Political Economy, by J. R. MacCulloch, 
Part I. Chap. II., sect. 3, Accumulation and 
Employment of Capital ; Chap. VII., Causes 
of Gluts; Part III. Chap. VII. , Circumstances 
which determine the Average Rate of Profits ; 
Part IV. , Consumption of Wealth. — American 
Political Economy, by Prof. Francis Bowen, 
Chap. XVII. , The Rate of Profit as affected 
by the Limited Extent of the Field for the 
Employment of Capital : The Theory of 
Gluts. — Principles of Political Economy, by 
Prof. William Roscher, Am. Ed., translated 
by John J. Lalor (1882), sect. 23, Equilib- 
rium between Production and Consumption ; 



106 THE CAUSE OF HARD TIMES. 

sect. 215, Necessity of the Proper Simultane- 
ous Development of Production and Consump- 
tion; sects. 216, 217, Commercial Crises in 
General; sect. 220, When Saving is Injuri- 
ous ; sect. 221, Limits to the Saving of Capi- 
tal. — Final Report of the Royal Commission 
appointed to inquire into the Depression of 
Trade and Industry (printed in 1886). — First 
Annual Report of the U. S. National Bureau 
of Labor, by Hon. Carroll D. Wright— Two 
articles by Mr. F. B. Hawley, the first in 
the National Quarterly Review for July, 
1879, entitled "The Ratio of Capital to Con- 
sumption," and the second in that Review 
for October, 1879, entitled "The Rationale of 
Panics " ; also a book published by the same 
gentleman in 1882, entitled "Capital and 
Population." — An article by Mr. Edward 
F. Sweet, in the Chicago Times for April 
26, 1880. — Recent Economic Changes, by 
Mr. David A. Wells. — Article on "Trusts," 
by Mr. Andrew Carnegie, in the North 
American Review for February, 1889. — 
An article on " Industrial Depressions, their 
Cause and Cure," by Mr. Frederick H. 



THE CAUSE OF HARD TIMES. 107 

Cooke, in the American Journal of Politics 
for December, 1893. — Involuntary Idleness, 
by Hugo Bilgram. — The Fallacy of Saving, 
by John M. Robertson. — A Fundamental 
Principle of Political Economy, a pam- 
phlet by Edgar J. Rich. — The Physiology of 
Industry, by A. F. Mummery and J. A. Hob- 
son. — The Evolution of Modern Capital- 
ism, by John A. Hobson. — These last two 
books, published in England in 1889 and 
1894, present views and arguments substan- 
tially the same as those presented in the 
preceding pages. 

In closing, it may be well to say that 
no professional economist has ever publicly 
recognized the validity of the theories and 
arguments set forth in this book. On the 
other hand, Prof. J. Laurence Laughlin, 
Prof. Silas Macvane, and Mr. T. B. Yeblen 
have published attempted refutations of those 
theories aud arguments, and Prof. Arthur 
L. Perry, Prof. W. G. Sumner, Prof. F. W. 
Taussig, and Prof. Charles F. Dunbar have 
privately expressed to this author their entire 
dissent from his views, the last-named gen- 



108 THE CAUSE OF HAED TIMES. 

tleman haying confined himself to a simple 
expression of such dissent, and having re- 
fused to enter in the slightest degree into a 
discussion of the grounds of such dissent, 
apparently deeming this author's views to be 
entirely unworthy of his consideration, and 
it may be added that Mr. John A. Hobson, 
whose two works are mentioned above, has 
written this author that he has had a similar 
experience with the English economists, no 
one of whom, he says, " shows the least incli- 
nation to give any consideration " to his 
theory. 

Lest the reader should be surprised at 
the fulness of the foregoing statement of 
the general repudiation of the author's views 
by the professional economists, the author 
desires to say that he does this only in order 
to prevent these economists from protesting, 
when the truth of the views here presented 
finally becomes apparent to them, that they 
were never foolish enough to deny such self- 
evident propositions, but that they had always 
maintained and asserted them. 



INDEX. 



Page 

Ashley, Prof. W. J. His answer to a question 95 
Atkinson, Edward. His view of general over- 
production 17 

Bilgram, Hugo. Reference to book by . . . 107 
Bowen, Prof. Francis. Reference to his 

" American Political Economy " . . . . 105 

Carnegie, Andrew. On over-production caused 

by excessive machinery 27 

His statement based on that of this author . 31 

Reference to article by him 106 

Chalmers, Dr. Thomas. Reference to his 

works 104 

Commerce. Competition of English and Ameri- 
can capital in 69 

Cooke, Frederick H. Reference to article by 

him 106 

Cummings, Prof. Edward. His question, and 

his failure to answer it 95, 96 

Demand. What economists mean by . . . . 9, 84 

Remunerative demand ....... 87 

Falling off of, the immediate cause of hard 

times 8 

What may be done to increase demand . . 50 



110 INDEX. 

Page 

Dunbar, Prof. Charles F. Has expressed 

dissent from this author's views .... 107 

France. Not troubled by hard times after 

Franco-German war of 1871 57 

Frewen, Moreton. His view of general over- 
production 16 

Future. Prognostications as to the .... 79 

General Over-production. What is meant 

by 14,26,83 

Economists claim that it is impossible . . 15 

John Stuart Mill on 15, 21, 83 

Prof. Silas Mac vane on 19 

Practical men believe that it has actually 

existed 18 

Shown to be possible 23, 26, 83 

A result of an excessive amount of ma- 
chinery 23, 26, 91 

Germany. Hard times in, after the Franco- 
German war of 1871 57 

Hard Times. Principal Characteristics of . . 7 

How relief from may be obtained .... 48 

Immediate cause of the recent hard times . 52 

How those of 1873 arose ....... 62 

Harvard Professor. Question propounded by 95 

Hawley, F. B. Reference to articles by . . . 106 

Hobson, John A. Reference to books by . 107 

His experience with English economists . . 108 



INDEX. Ill 

Page 

Income-producing Investments. Importance 

of 35,61 

The field for, a limited one 35 

Will remain crowded in the future ... 79 

Great demand for 35 

Monopolizing of 63 

Effect of a reduction of the rate of income 

from 65 

Interest. Rate of, falls in hard times ... 8 
Lower rates may be expected in the future . 80 

Labor. Effect of shortening the hours of . 49, 51 
Duty of government to find employment for 66 
Probable behavior of, in the future ... 81 

Laughlin, Prof. J. Laurence. Has published 

attempted refutation of this author's views . 107 

MacCulloch, J. R. Reference to his works . 105 

Machinery. Excess of 13 

When excessive in amount, causes over-pro- 
duction 23, 91 

Run at a loss to save greater loss from stop- 
page 23, 92 

Excess of, a result of excessive demand for 
income-producing investments .... 34 

Limit to the amount of, that can find profit- 
able employment 37 

Macvane, Prof. Silas. On general over-pro- 
duction . . . . ' . 19, 89 

Has published attempted refutation of this 
author's views 107 

Malthus, Rev. T. R. Reference to his works 103 



112 INDEX. 

Page 
Mill, James. Reference to his works . . . 104 

Mill, John Stuart. Held general over-pro- 
duction to be impossible .... 15,21,83 
Deemed the point to be fundamental ... 74 
His explanation of the ' ' tendency of profits 

to a minimum " *77 

What he meant by general over-production 83, 87 

Reference to his works 104 

Moffat, Robert Scott. Reference to book by 105 
Mummery, A. W. Reference to book by . . 107 



Over-production. What is meant by . . 14, 83 
Caused by excessive amount of machinery 23, 91 

Andrew Carnegie on this point ..... 27 

David A. Wells on this point 29 

Perry, Prof. Arthur L. Has expressed dis- 
sent from this author's views . . . . . 107 
Price, Prof. Bonamy. His explanation of hard 

times 11 

His statement of comparative condition of 
France and Germany after Franco- Ger- 
man war 58 

Reference to his works 105 

Production. Excessive capacity of ... . 13 

How it may be diminished 49 

Railroads. Effect of hard times on . . . . 8, 9 

Future prospects of • . 80 

Real Estate. As an investment in the future 80 

Ricardo, David. Reference to his works . . 104 

Rich, Edgar J. Reference to pamphlet by . . 107 



INDEX. 113 
Page 

Robertson, John M. Reference to book by . 107 
Roscher, Prof. William. Reference to his 

Political Economy 105 

Royal Commission on Depression of Trade, 

Report oi 106 

Saving. Desire for may be excessive .... 39 

Solomon on excessive 40 

Effect of excessive .,. . . 43,95 

Extent to which saving is carried . . . 44 

Say, Jean-Baptiste. Reference to his works . 104 

Smith, Adam. Reference to his works . . . 103 
Sumner, Prof. W. G. Has expressed dissent 

from this author's views 107 

Sweet, Edward F. Reference to article by . 106 

Tariff. Reasons for and against a protective . 68 
Taussig, Prof. F. W. Has expressed dissent 

from this author's views 107 

Tendency of Profits to a Minimum ... 77 

Trusts, Origin of 71 

Effect of 49 

Underconsumption. What is meant by . . 14 

Veblen, Mr. T. B. Has published an attempted 

refutation of this author's views .... 107 

War. As a means of relief from hard times 49, 50 

Effect of Franco- German 57 

Effect of our War of the Rebellion ... 60 

Wealth. Effect upon, of excessive saving . 43, 95 

7 



114 INDEX. 

Page 
Wells, David A. On over-production caused 

by excessive machinery ...... 29 

His statement based on that of this author . 31 
Unacknowledged quotation from this author 

by him 66 

Reference to his " Recent Economic Changes " 106 

Wright, Carroll D. Reference to report of . 106 



u 




sai^^ 



021 183 095 5 



